Norwegian Pension Fund

1. Compare the main features of what you understand to be the Norway Model with those of the Canada Model (as represented by CPPIB).
• The GPFB is essentially a sovereign wealth fund, funded with petroleum revenues and integrated with the government’s fiscal budget. There are no specific long-term liabilities to service. The CPPIB is not a sovereign wealth fund, does not serve a government budget and its funds (at a contribution rate of 9.9%) come from employers and employees in Canada. Therefore, the CPPIB has future liabilities in the form of pension payments.
• The CPPIB employs a total portfolio approach in which investment decisions are made by allocation of underlying risk characteristics across various investments. In doing so, it does not restrict its allocation to any asset class, as long as the risk/return benefit from an investment justifies its deviation from the Reference Portfolio. The GPFB however functions as a typical pension fund, where allocations of funds are across asset classes and regions. The portfolio would be rebalanced when specific asset classes deviated from a benchmark, hence restricting the percentage asset allocation of the portfolio.
• The GPFB has only recently started an allocation of funds to real estate with the rest of the portfolio invested in fixed income and equity. The CPPIB, on the other hand, is more aggressive in its investments in illiquid assets, having gradually increased its allocation to infrastructure, private equities and real estate, which formed approximately 30% of the portfolio as of 2011.

2. Do you agree that the Norway Fund provides a good blueprint for other countries to establish a SWF? State your reasons.
I agree:
• The fund is well integrated with the Government budget. By financing the non-oil budget deficit of the government and clearly articulating a strategy of fund withdrawals corresponding…...

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